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Small-Business Lending and Profit Efficiency in Commercial Banking

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Abstract

We use nonparametric linear programming methods to calculate the directional distance function and the profit function for a random sample of banks from 1994 to 1999. The estimates imply that the gain in small-business lending from reducing technical inefficiency is minor compared to the gain possible from eliminating allocative inefficiency. Actual small-business lending early in the sample period is less than optimal, but the misallocation is confined to small banks. As a percentage of assets, small-business lending is larger for the most efficient banks.

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Authors and Affiliations

  1. Southeast Missouri State University, U.S.A

    Michael Devaney & William L. Weber

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  1. Michael Devaney
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  2. William L. Weber
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Devaney, M., Weber, W.L. Small-Business Lending and Profit Efficiency in Commercial Banking. Journal of Financial Services Research 22, 225–246 (2002). https://doi.org/10.1023/A:1019733226515

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